Job target for the BC, defended by Lula, is a bad idea according to former members of the autarchy

The idea of ​​creating employment and economic growth targets for the Central Bank, as aired by Luiz Inácio Lula da Silva (PT) in recent interviews, is seen as inappropriate and unfeasible by former members of the monetary authority.

In the opinion of former BC members —who passed through the autarchy between the 1980s and 2000s—, heard by the Sheetthe proposal would not work well and could make the monetary authority deviate from its central mission, which is to control inflation, causing more damage to the country’s economy.

For them, a single instrument –the basic interest rate (Selic)– cannot solve more than one issue simultaneously.

“The only mechanism he [BC] All you have to do is raise interest rates,” Lula told SBT at the end of September. “The BC needs to assume another responsibility. The same bank that has the power to tax and set an inflation target needs to set an economic growth target and the employment target that we are going to create.”

Since the approval of the autonomy law in February 2021, the BC has had to ensure the efficiency of the financial system, smooth out fluctuations in the level of economic activity and promote full employment. These are its secondary obligations, which must be fulfilled as long as there is no harm to the fundamental objective of ensuring price stability.

For Gustavo Loyola, who presided over the BC between 1992 and 1993, during the Itamar Franco administration, and between 1995 and 1997, during Fernando Henrique Cardoso’s first term, central banks should not have a dual mandate, as is the case in the United States.

“The fact that the Fed [banco central americano] having that, doesn’t mean it’s right”, he said. “Having two conflicting objectives in the short term, this ends up leaving the BC in a situation where, in the end, it doesn’t do either of the two services well”.

The path to economic growth, according to Loyola, is a “hard, decisive and energetic” stance in the fight against inflation. The current CEO of Tendências Consultoria sees procrastination in the face of inflationary risk as harmful to the economy.

“It is as if the person took a dose of antibiotic below the correct one to attack a disease and will then be under treatment for much longer. Eventually, he will not be able to overcome the disease and will even need a larger dose of the medicine”, he compared. .

Former economic policy director Sérgio Werlang considers that placing a new attribution to the BC would not be effective due to the lack of tools available to the monetary authority to stimulate the economy’s productivity.

“The BC does not have an instrument for both policies, so it is not appropriate that it has two primary goals that cannot be achieved simultaneously, except by luck or on special occasions, and it is certainly not one of them now,” he said.

For Werlang, one way out would be to reconsider inflation targets. “The National Monetary Council, in my view, made a huge mistake when it started to lower the target from 4.5% to 3% [objetivo fixado para 2024]”, said.

The possibility of revision, however, is not on the radar. According to economists, an upward move would generate a loss of credibility for the BC and would place Brazil at a competitive disadvantage compared to its peers on the international scene.

According to José Júlio Senna, former director of public debt and open market, setting employment and growth targets for the BC is not feasible from a technical point of view.

“No central bank can have effective control over variables determined by the real sector of the economy, such as the unemployment rate and GDP growth,” he said. “The BC does not have the power to determine these variables in a sustainable way.”

Alexandre Schwartsman, former director of international affairs, also problematizes the proposal considered by Lula. For him, it would be a recipe for “disaster”.

“If the objective of job creation or growth is not consistent with inflation in the target, the BC is in a rut. Either it uses the interest rate to bring inflation to the target or it will try to make the rate growth reaches a certain value, abandons the inflation target, which is no longer under control”, he exemplified.

According to Luiz Fernando Figueiredo, former director of monetary policy, even in the case of central banks with dual mandates, price control ends up being a priority.

“Knowing that if inflation gets high, employment falls apart, in the end, the first priority is inflation,” he said. “It’s just that when you put five priorities, you don’t have any, so it’s better to put one as dependent on the other.”

The current chairman of Jive|Mauá’s board considers that the framework that exists in Brazil today already makes the BC make its decision on interest rate policy taking into account income, employment and economic activity. “At the end of the day, the BC wants to maximize low inflation with better employment. High inflation is a home wrecker,” he said.

Economists with no ties to the monetary authority also have reservations about possible changes in the BC’s attributions. But the improvement of the “light” dual mandate is defended by economist Bráulio Borges, from LCA Consultores. For him, today there is a need for greater demand for the BC to be more explicit about its flight plan in terms of secondary objectives.

Despite Lula’s statements, the view on changes linked to the BC is not a consensus in the PT, as it may mean spending political capital and creating difficulties in the relationship with Congress in a government that will have other priorities.

According to Guilherme Mello, economist in the campaign of former President Lula, an eventual PT government will demand a more vigilant posture from the autarchy in complying with the secondary pillars provided for in the autonomy law.

He argues that the idea is not to change the law that governs the functioning of the BC, but to dialogue with President Roberto Campos Neto and the board for joint work aimed at raising the level of employment and reducing inflation.

“The federal government will work hard to increase the volume of jobs and people’s income. The BC also has its duties to control inflation with as much employment as possible”, he said.

“I’m sure that, if ex-President Lula is elected, the dialogue with the BC will be very positive because it is in the interests of both to control the cost, control inflation and increase the level of employment”, he added.

Borges, from LCA, considers that talking about employment and full employment are separate issues. In the second case, the goal is to bring the unemployment rate to the equilibrium level – one that does not accelerate or decelerate inflation. In the consultancy’s estimate, the natural rate is around 8.5% in Brazil.

“If you define the objective as maximum employment, the sky is the limit, and this will not necessarily be compatible with the objective of keeping inflation around the target”, he said.

For the specialist, creating a job target would be a “huge setback”. “It will simply take Brazil to the path of what we are seeing in Turkey, where inflation has already reached 70%,” he said. In September, Turkish annual inflation reached 83%.

Economist José Luis Oreiro, a professor at UnB (University of Brasília), is another who believes that a dual mandate with a target of employment is not adequate for Brazil, where there are about 39 million informal workers.

On the other hand, he sees the definition of a growth target as positive for moments when the BC is faced with supply shocks. For him, if that were the current model, the municipality would have carried out a smoother monetary tightening cycle. Between March 2021 and August this year, the interest rate jumped from 2% to 13.75% per year.

“In situations where there is a conflict of objective between inflation and growth when there is a supply shock, this mechanism would lead to a moderation in the rate of interest rate rise and, therefore, would result in a lower cost of carrying the debt for the government and in a smaller deficit of public accounts”, he defended.

UNDERSTAND THE AUTONOMY OF THE BC

Which is? The autonomy law separated the BC from the Ministry of Economy, making the body an autarchy of a special nature. The main change was the creation of fixed four-year terms for the president and directors, which can be renewed only once and do not coincide with that of the President of the Republic.

When was the law passed and why? With the aim of shielding the institution from political interference, the bill authored by Senator Plínio Valério (PSDB-AM) was approved in the House in November 2020. The text went on to vote in the Chamber, which took place in February 2021 and , then sanctioned by President Jair Bolsonaro (PL).

What are the legal attributions? Controlling inflation is the main objective of the BC, which is also responsible for providing stability to the country’s financial system. The autonomy law included among the secondary obligations of the monetary authority the promotion of full employment and smoothing fluctuations in economic activity.